Magic circle sees UK market share shrink as global consolidation takes hold

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  • This article makes very little sense and reflects poorly on The Lawyer.

    You can't say a firms share of the "UK market" has shrunk when you include revenue from firms whose increase in the past couple of years is wholly due to 'mergers' abroad. DLA and Norton Rose are Swiss vereins and you are including revenue that is not accrued to the UK part of these firms in your figures referencing the UK market. These firms maintain separate revenue and profit pools and are in no way financially integrated.

    If you showed the "UK"earned revenue for all of these firms then perhaps this article would be premised on something somewhat more reliable!

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  • Dear Mr M: none of the 'UK top 10' are solely UK firms any longer. We do collect regional breakdown, which will be analysed in the UK 200 later this year. For the purposes of this article, however, we are talking about the market share of firms headquartered in the UK.

    The verein question will doubtless be brought up again, but our attitude is that a firm operating as a verein - while not financially integrated - is still a single brand, usually with a single management team overseeing the whole, and therefore bringing all the constituent revenues together is valid analysis.

  • The Editor's reply above shows a failure to understand what market share is.

    If company A has 10%, company B 5% and company C 5% and company B and C then merge, this does not mean an immediate loss in market share for company A. It simply means that company A no longer has the largest market share - very different.

    To calculate whether the magic circle has lost market share one would first have to calculate the size of the market they operate in, and then calculate their revenues as a percentage of it.

    This is not straightforward since they clearly do not operate in all areas of the legal services market.

    There is no doubt that consolidation is a major threat to the magic circle as other firms emerge with similar or even greater scale giving them the resources to compete in many of the same areas, if not, yet, in top-end M&A and finance work.

    However the data given in the article is not capable of supporting the analysis of lost market share.

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  • Dear Editor: if the analysis in this article relates to the global revenue share of the UK top 10, rather than the UK market share of the UK top 10, then the headline is wrong (which refers to UK market share).

    It is also not made clear in the article that non-UK revenue is included in the analysis, and Mr M was astute to recognise it. Given the headline, a reader not familiar with the numbers may well read the article assuming you were only including UK revenues.

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  • Interesting idea, but logically wrong. The Lawyer is confusing two different things, 1) share of 'raw' revenue data as recorded by the UK 100 table, and 2) real market share, for which no statistics are supplied in this analysis. Without defining more accurately 'the cake' one is sharing one cannot talk of 'market share'. Perhaps a country by country analysis would be more accurate and with that one could then calculate 'market share' by dividing each firm's local revenue by the total legal market value in that country. The market shares of each firm would be very small, but at least one would be on solid statistical ground. As it stands no meaningful observations can be taken from the data presented here other than that many more law firms now operate globally, whereas before there were less, which in turn has created a correlated swelling in total revenues of the top 10 law firms recorded in the UK 100.

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  • There are two complexities here: (i) that the firms operate internationally (although none truly worldwide, and in different places), and (ii) that the firms are not active in all areas of the legal services market (and some, such as DLA, are active in a lot more areas than others like Ashurst).

    More useful indicators for market share are perhaps things like M&A league tables for designated markets and deal sizes. The magic circle is increasingly focused on top end cross border M&A and high end finance work. Has it lost market share there? Perhaps, but if so then not to the likes of DLA - yet - but rather to firms like Latham & Watkins.

    The legal market has been unusual in that the largest firms have also been those strongest in the most high end work. In most other sectors the largest players are focused on the consumer/volume market or, like the Big 4 accountancy firms, are very broad and all-encompassing in activity.

    It has often been the case that the magic circle firms have got work in the past simply because they were the only firms in the UK with the scale and resources to deliver large projects. There are an increasing number of firms, even national firms, which have the scale to deliver large projects. This is particularly relevant in areas like real estate but also in some M&A work - not all M&A is rocket science by any means.

    The magic circle will find that increasingly they will no longer enjoy the double benefits of being both much larger, and much stronger in the top end of the market, than their competitors. This was a historical quirk which is disappearing.

    In the future the biggest firms will be DLA type firms which ape the Big 4 in terms of geographical and serivce scope.

    The magic circle will therefore need to either focus increasingly on work which is truly complex, rather than simply requiring lots of people and resources to deliver, or abandon their focus on profit margins and PEP and go for scale in the DLA manner. It looks like they are heading down the first path, but they should be aware that it is a risk that firms like DLA will over time leave them with an ever smaller part of the market in which to operate and enjoy market dominance.

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  • The figures are junk quelle surprise.

    Qualitative analysis is suspect too.

    Two more interesting "facts":

    1. Magic circle partners earnings have fallen significantly in real terms since the late 90s when partners at Slaughter and May and others were drawing £1m+

    2. Newly made up partners buy houses in Tooting not Chelsea these days

    3. US firms can be very profitable but they have not broken any significant UK based legal department for mainstream UK corporate work. They suffer from not having the institutional relationships and embedded in house teams and they suffer from patchy quality which is a problem for them (but not so much for the magic circle) because they need to be better to break in

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